Home prices unlikely to appreciate post RERA, experts say

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RERA-Act

The impact of RERA on property rates has been debated time and again. However, post its implementation, experts opine that an immediate alteration in prices is not on the cards. While piling inventory may restrict growth, high cost of land and construction will prevent a price correction in future.

Have you, too, like many others, been anticipating an upward revision in prices post the implementation of the Real Estate (Regulation and Development) Act on May 1, 2017?  If yes, then it is time you get an idea about ground reality. The setting up of the Real Estate Regulatory Authority (RERA) under the Act will undoubtedly infuse transparency, protect homebuyers, instill positive buyer sentiment and lead to sales generation, but will not trigger a price hike, as per popular belief.

What drives property price movement?

Prices in the real estate market are essentially driven by demand-supply dynamics. The Indian realty landscape is currently reeling under a paradoxical situation. While the affordable housing segment observes a shortfall of a whopping 20 million units, the mid-income, high-income and luxury housing brackets are highly over-supplied. The latter categories record a significant demand from end-users and investors, however, the ongoing economic scenario has kept the buyers wary of purchases and resulted in a massive pile up of residential stock across cities.

The implementation of RERA will significantly boost buyer sentiment and drive sales, however, an immediate impact on prices is not on the cards. Reiterating the same, Amit Chawla, Associate Director - Valuation & Advisory, Colliers International India says, “RERA will definitely induce real buyers to firm up their purchase decisions, however, an impact on property rates can only be assessed over a period. The property price movements are a function of demand and supply dynamics. Although the more regulated and well developed projects will command a premium, the current situation of over-supply will impact the actual price movement.”

QUoteAnother factor that is believed to push up the property rates  is the mandate to charge on the basis of carpet area instead of super built-up area under RERA. However, experts say, this, too, might not lead to a dip in overall rates. Rakesh Reddy, Director, Aparna Constructions and Estates, a Hyderabad based developer, opines, “Selling homes on carpet area instead of the super built-up area will push the per sq ft cost up. However, the actual aggregate cost of the unit will remain the same as it was before RERA came into the picture. Since the carpet area has been clearly defined in the Act, this will bring uniformity in the industry and help the buyers in making informed choices.”

Does that mean prices could fall?

Real estate enthusiasts have been putting a lot of stress on the impact of RERA on property rates. However, as much as the prices are unlikely to appreciate post its implementation, homebuyers are advised to not wait in anticipation of a price dip. In addition to demand-supply forces, there are several other factors including circle rates, land and construction costs which will impact the overall price movement. Reaffirming the meek chances of dipping rates post implementation of RERA, Manju Yagnik, Vice Chairperson, Nahar Group says, “Property prices are not likely to come down till the time ready reckoner rates are reduced. The high cost of land and construction, too, needs to be brought down to reduce the overall cost of a home. In addition, there is a premier on stamp duty and Transfer of Development Rights (TDR) which also adds up to the total cost. A dip in TDR and ready reckoner prices will solve the problems to a great extent.”

Overall, the quantifiable impact of RERA could be assessed in terms of the number of new launches happening following its implementation. However, property rates still stand independent of this radical policy reform and may witness some alteration only in the mid to long term horizon.


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